Recently a situation came up that almost stopped a short sale from closing.  Title companies in California always order a preliminary title report to get a list of liens on a property.  These liens includes mortgage, HOA, property taxes, utility, mechanics, IRS, child support and other types.

Most liens are easy to remove but there are those that are more challenging.  IRS Tax and child support liens can halt a short sale.  However, escrows can still close but these challenging liens will need to be removed before closing.

Most sellers in default or in the foreclosure process do not have the money to pay off a lien at closing.  The seller’s lender will not entertain paying off the seller’s liens unless it is the standard liens and even then they might try to negotiate that the seller pay part or all of them.

If there is a child support lien against the property call the county child support division and ask what is the process for releasing the lien when the property is being sold as a short sale.  

On a equity sale there may be enough money to payoff the lien.  But on a short sale sellers will not get any proceeds from the sale, therefore there will be no money to pay off the lien. 

In this situation the county advised to write a letter explaining the situation and including it with the demand for a $0 balance that escrow sends out.

The title company submitted the letter stating the seller was current in their payments but since it was an out-of-state lien the county stated the seller would have to go to court to request the lien be removed so escrow could close.  Well, that’s now what the seller wanted to hear.  It was going to take money to hire and attorney and delay closing.

Escrow has not yet closed.  All parties in the transaction are working on coming up with a solution.  Any suggestions or ideas?  Your input is welcome.